AAPL: Barclays Ponders Holiday Discounts Amidst Increased Competition

By Tiernan Ray

Barclays Capital‘s Ben Reitzes was among those offering positive remarks on Apple (AAPL) stock today, arguing that “Given the recent sell-off in shares we believe that there is still room to surprise investors with holiday sales momentum at Apple.”

Reitzes reports in a note to clients that his “checks” with individuals in the Asian supply chain suggest Apple’s production of the iPhone 5 “is getting better,” though still at 2 to 3 weeks’ wait for delivery.

“In fact, we believe iPhone builds could even support unit sales of over 50M this quarter vs. our estimate of 43.5M units should further improvements be made.”

Production of the recently introduced iPad mini is also “improving slightly,” and Reitzes thinks manufacturers are prepared to product 8 million units this quarter, which might lead to sales of 6.5 million units (versus 14.7 million for the larger models of iPad.)

Reitzes insists Apple’s lineup of computers, tablet computers and music players is “the strongest across the board” but acknowledges the dramatic increase in competition, a fact that comes into sharper focus with the contemplation of holiday discounting:

We believe we may see some significant discounts on competing tablets in the days surrounding Thanksgiving, as well. As of Monday afternoon neither Amazon.com (AMZN) nor Google (GOOG) had advertised Black Friday discounts for their tablets on their respective company online stores but we anticipate some form of deal in the near future. Samsung Electronics (005930KS) was currently advertising $70-off the regular price of a 7” WiFi-only Galaxy Tab 2 with 8GB of storage and $100-off a WiFi-only 10” Galaxy Tab 2 with 16GB of storage. We believe that Samsung has inventory to move in tablets with its channel partners, which helped inflate 3Q12 market share statistics. We also expect Apple to see some competition from its own partners – as Wal-Mart online was offering iPad 2’s for $399 that come with a $75 giftcard and in select stores Wal-Mart was advertising fourth generation iPod touches for $195 vs. Apple’s current price of $199. The iPhone 5’s biggest competitor was also expected to sell at a discount on Friday with Wal-Mart advertising a Samsung Galaxy SIII for only $129.99 each vs. $199 for the “comparable” Apple iPhone 5. Best Buy’s website stated that it’s Black Friday Door Busters deals would become available online on Thursday [...] We also note a changing landscape in the iPad’s competition. Last year Apple faced a new threat in the $199 Kindle Fire from Amazon. The Fire’s low price made it popular quickly and the product did seem to impact iPad sales momentum at least a bit. This year the competition seems even more serious across more and cheaper devices. For example, the Nexus 7 (starting at $199) from Google/ASUS and 10 (starting at $399) from Google/Samsung, the Samsung Galaxy 10.1 (starting at $299) and Amazon’s completely refreshed line of Kindle Fire tablets (the Fire HD starting at $199) are all competing with the iPad and iPad mini. Last year in 3Q11 Apple had 60% of the tablet market; however this year, Apple’s share has declined to about 50% as of 3Q12. We believe with the refresh of the iPad to include the A6X chip and the introduction of the iPad mini, Apple can regain share throughout the quarter, even at premium prices.

On a related note, Doug Kass with Seabreeze Partners today offered his observations of Apple’s Black Friday offerings for the holidays, with the Apple store “providing 18 months of interest-free financing” on certain products, including the iPad, Target stores offering a $60 gift card with online iPad purchases, and Best Buy throwing in a $35 gift card for “Silver Reward” members. Kass told followers he is currently long AAPL shares.

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